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Business as unusual – innovating professional services – 7

Monday, December 21st, 2015

by Alastair Ross, Director, Codexx Associates Ltd

Part 7. Key challenges and sustaining innovation

Introduction

This is the last in a series of seven articles on professional service innovation. The objective of the series is to provide a basic introduction to innovation management for managers, partners and change agents working in professional service firms. This final article reviews the key challenges that professional service firms will face in establishing, accelerating and sustaining an innovation programme and some of the approaches that can be used to address them. To read the first article in the series go here.

Key innovation challenges

In establishing and operating a programme for innovation within a professional services firm, many challenges will be faced, for example:

“Carving out real time for innovation instead of chargeable work is a major challenge…we don’t do enough of it.” Partner, Management Consultancy

“Motivation challenge for employees is that chargeable hours win.” Partner, Accountancy

“Innovation does not come naturally to most risk-averse lawyers.” Partner, Law Firm

“People don’t want to take risky ideas to the boss.” Partner, Management Consultancy

“We’ve been in our functional silos too long and they’re too deep.” Manager, Business Services

“There is lip service to innovation at senior levels due to the difficulty of making the required cultural change.” Partner, Law Firm

These quotes are from clients and a Codexx study in 2012-13 investigating the key challenges encountered by professional service firms in innovation. The study examined 15 predominantly large professional service firms in law, consulting & business services, accounting and insurance. The participating firms were asked to identify their top 5 innovation challenges. The results are shown in Figure 1. A copy of the study report can be found here.

Fig 1: Innovation challenges in professional service firms (Source: Codexx)

Two of the top three challenges are culture-related issues, each identified by 9 or more of the respondents. The highest challenge was ‘the motivation for employees to innovate’. Firms see that in most cases there is not enough encouragement for employees to innovate. The second highest challenge identified was ‘no/poor innovation process’ – the lack of an effective structured approach for gathering, exploring, selecting and implementing ideas. The third highest challenges was ‘a hostile culture to innovation’ which has some similarity to the highest challenge, the difference being that the first challenge covers a lack of incentive for employees to innovate which covers things like management encouragement and support and reward. This third-ranked challenge identifies an active discouragement for employees and managers to spend time on innovation.

The ‘Other’ category covers a number of other challenges that were identified by respondents. Some of these do overlap with the existing categories, but others capture additional challenges such as the difficulty of managing multiple stakeholders and the issue of functional and departmental silos which can limit the sharing and development of new ideas across the firm.

Figure 2: The innovation system (Source: Codexx)

Addressing key challenges

Establishing and operating an innovation system, covering the 7 practice areas, as outlined in Part 3 of this series and shown in Figure 2, is the most robust approach for dealing with the common challenges faced:

Employees will be motivated to participate in innovation activities if there is supportive leadership within the firm and a performance management system that measures and rewards innovation participation. Champions need to be found, to lead projects and help execute required changes.
An ideas management process will address the frustrations and inefficiencies that occur when ideas cannot easily be explored, evaluated and selected for implementation in an effective way.
A hostile culture for innovation occurs when partners and employees are exclusively focused on today’s business and are effectively penalised when working on innovation (i.e. tomorrow’s business). This can only be addressed by moving the culture to innovation-positive through communication, espoused values in the firm and recognition and reward systems that support it.
Innovation needs to be resourced – in a professional service firm this particularly means partner and employee time made available for innovation, some common tools and methods (process mapping, analysis and Lean-enabled improvement for example).
Firms need to engage clients in their innovation activities, to gain insight and identify opportunities for enhancing value and to look externally for new ideas and resources.
Learning needs to be enhanced in firms, especially to support process-based innovation, with the use of process management and measurement and continuous improvement. Additionally a culture of capturing, sharing and reusing improvements is needed to get innovation beyond the silos of teams and departments and applied across the firm.

Sustaining innovation

Leading a programme to establish sustainable innovation within a professional services firm requires a long term outlook and effective change management. In making change within a partnership it is key to get the support of the majority of partners (unlike a corporate where a board-driven ‘It’s my way or the highway’ approach can be effective). Partners need to recognise that the benefits of the change will outweigh the pain and cost of the journey required. This individual assessment of the pros and cons of change are captured in the ‘change equation’ developed by Beckhard and Harris. This is a simple equation but is powerful in recognising that the viewpoint of change must be both at the personal as well as the organisational level. That is, answering the question from the viewpoint of those key individuals who hold power within the organisation, rather than simply from the viewpoint of the organisation as a whole. This is because it is the perspective of the key decision-makers in an organisation that is critical. The ‘change equation’ states that for successful change:

DVP > C

where

D= Dissatisfaction with the status quo

V = Vision of desired future state

P= Practical Plan to realise the future vision

C = total perceived Cost of change (covering energy, emotional, financial)

(Source: Richard Beckhard and Rubin Harris).

So for someone to be supportive of a proposed change the combination of their dissatisfaction with today’s situation, the attractiveness of the future vision and the proposed plan to realise it must be more compelling than their perception of the cost of making the change. Change leaders need to be able to effectively ‘sell’ the proposed innovation programme at the outset and then continue to sell it during the years it takes to fully establish it within the organisation. This is why measurement and communication of benefits, visible recognition and reward of those effectively leading and participating in innovation activities and establishing innovation behaviours as key to progression in the firm are all key to successfully sustaining the innovation programme.

Summary of the series

The objective of this series was to introduce the key elements of an effective approach for driving and managing innovation in a professional services firm. This is based on my experience of working in Codexx on innovation and re-engineering with major professional service firms over the last decade.

In this series I defined a framework for considering and identifying innovation opportunities, using the ‘innovation dimensions’ model and then gave examples of the four key innovation categories. I then outlined a system to support innovation within a firm, based on 7 key practice areas. In the final two articles I discussed approaches for starting and accelerating innovation within a firm and identified the typical challenges that will be encountered in this journey and key approaches for addressing them.

I won’t pretend that this series will make its readers experts in innovation – that was never the intention! Instead, I hope that readers will have a better appreciation of the opportunities and challenges for applying innovation in professional service firms and to recognise that there are proven approaches to effectively manage innovation so that it can ultimately deliver improved competitiveness for their firms. And from my experience, there is major opportunity for professional service firms to utilise innovation to drive significant improvements in the value provided to clients and the efficiency in which it is delivered.

References and further reading

This article and the others in the series are based on the approaches, references and case studies detailed in my book ‘Innovating professional services – transforming value and efficiency’ published by Gower in May 2015. This is based on the author’s ten years of experience working with professional service firms on innovation projects. It provides in-depth coverage and case studies of the topics featured in this series. For more information go to: https://www.codexx.com/2015/innovating-professional-services-new-book/

Tags: Innovation, Professional service
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Continuous Improvement – the quiet giant of innovation

Wednesday, December 2nd, 2015

A BBC article (here) recently gave media prominence to a well-established business approach, namely incremental or Continuous Improvement. It cited the example of how Sir Dave Brailsford applied Continuous Improvement approaches in his role as performance director of British Cycling to benefit from ‘marginal gains’:

Brailsford believed that if it was possible to make a 1% improvement in a whole host of areas, the cumulative gains would end up being hugely significant. He was on the look-out for all the weaknesses in the team’s assumptions, all the latent problems, so he could improve on each of them. (Source: ‘Should we all be looking for marginal gains?’, BBC)

Brailsford made small improvements in cycling aerodynamics, in maintenance methods, in rider health and other areas identified by analysis as being small areas of weakness. These small improvements aggregated together transformed the competitiveness of the British Cycling team and subsequently Brailsford used a similar approach in the Team Sky cycling team. The result?

Team GB used to be also-rans in world cycling. Indeed, one pundit described the operation as “a laughing stock”. But in the last two Olympics, Team GB has captured 16 gold medals and British riders have won the Tour de France three times in the last four years. (Source: ‘Should we all be looking for marginal gains?’, BBC)

A short history of Continuous Improvement

Continuous Improvement (CI) is a type of innovation (defined as creating value from ideas) that sits at the unsexy end of the spectrum of business innovation. It receives few column inches in innovation blogs, individual projects do not result in earth-shattering changes and few of the project instigators will receive individual rewards. It is noteworthy only for its aggregated impact – of using new ideas to increase customer value or internal efficiency (by a little at a time). Toyota is often considered, incorrectly, as the parent of CI as part of its Toyota Production System (TPS), which later became known as Lean. But its conception was much earlier, primarily in the work study movement of the early twentieth century, fathered by Frederick Taylor and resulting in Taylorism. Toyota wrapped the resulting hard mechanics of time & motion study with its own philosophy of waste elimination and high workforce engagement.

Toyota sets the performance bar

Toyota’s ability to generate an average of 10 implemented improvement ideas per employee per year places it in the premier league for continuous improvement; most western firms struggle to get into the lowest league with typically 0.1 implemented ideas per employee per year. Toyota’s approach to CI lies in its combination of a specific methodology and a work philosophy that defines a unique organisational culture: ‘Toyota views employees not just as pairs of hands but as knowledge workers who accumulate the wisdom of experience on the company’s front lines.’ (Source: ‘The contradictions that drive Toyota’s success’, Harvard Business Review, June 2008) This is a powerful view and one that is all too often missing from business organisations.

Whilst industrial firms will have established CI programmes, focusing on shop floor teams, they vary significantly in their effectiveness. In my work with Codexx I have assessed a number of industrial CI programmes and typical weaknesses that occur include: Limited training in the use of CI methods, lack of defined goals and focus areas for CI, weak processes for reviewing and selecting ideas and limited workforce engagement (i.e. most ideas come from a few people). However for businesses that get it right, CI programmes can deliver significant financial benefits year on year and create a working culture that energizes and engages the workforce.

What about services?

Service businesses often lack robust capabilities for CI, although this is changing as Lean thinking continuous to permeate this sector. Allianz Insurance plc launched a major and ongoing innovation programme in 2006. At its core is a Continuous Improvement system.This uses departmental teams meeting regularly to identify and implement improvement opportunities. Each department team defines three key goals for their team and then, using a short weekly or bi-weekly meeting, they seek to solve problems that have been identified during the previous week and put on a departmental whiteboard by team members. Idea exploration and selection is performed by the team through a discussion. Implemented solutions are then recorded in the firm’s ideas management system. In total there are about 400 teams working in this way with the support of 100 trained innovation champions. Since its start the programme has yielded 38,000 implemented ideas with benefits measured at £19m (1).

Making difficulties visible

A challenge for service firms in Continuous Improvement is the difficulty of ‘seeing’ problems. In industry, a production process is physical, parts and products move through process steps involving people and machines. In a service business, the ‘product’ is information or an experience and is not always physical. This is especially so in Knowledge Intensive Services such as design, accountancy, law and management consulting where the ‘product’ is information-based. Why does this matter? It matters because ‘making difficulties visible‘ is key to Continuous Improvement. This is why a key mantra in Toyota is Genchi genbutsu or ‘Go See’. In other words: Don’t rely on reports or information from others, go and see the situation for yourself. In a services environment, walking into the location where work is performed provides limited value, particularly in information-based work, for there is little to see: what does a law firm’s office filled with people, desks, computer screens and paper (oh yes) tell you about the services performed there? Very little. This is why process mapping and visual management methods are key to making processes and their performance visible in a services environment. In my re-engineering work with professional service firms, the power of collaborative process mapping cannot be underestimated.

Continuous Improvement needs ‘Know Why’ not ‘Know How’

‘Know How’ is a common term used to describe expertise and is thus considered a ‘good thing’. However it is a bad thing when it becomes a barrier to innovation, which is not uncommon. Let me explain further. Much of work is repetitive to a degree with work comprising common activities and sequences of tasks. ‘Know How’ is sufficient to perform such work, as the procedures to be performed and the steps to be followed can be learned and represent the required ‘Know How’. The underlying reasons for why the work is designed in this way are not necessarily understood or indeed do not need to be to perform the work. But ‘Know Why’ is key to making significant improvements in how this work is performed as there needs to be understanding as to why the work is designed in its current form. Indeed much waste exists in working methods because steps and procedures in place were relevant to a situation that does not apply any more. For example, in a major insurance client, some activities in an internal process related to an IT-workaround which had not been required for many years….the people performing the work simply had not been told. The disciplines of questioning, investigation and analysis to enable ‘Know Why’ – a deep understanding – of the work area under focus provide a strong foundation for Continuous Improvement.

Marginal gains x high participation = something big

One of the biggest challenges in driving innovation in an organisation is how to fit it in around the daily business. Innovation is about creating ‘tomorrow’s business’ – a organisation’s focus is on delivering ‘today’s business’ and employees are measured and rewarded on this. So finding time for innovation is always challenging. A related challenge is that the term ‘innovation’ can be intimidating to employees. Many people (incorrectly) associate innovation with the need for creativity and radical ideas and thus feel that they can’t contribute. AXA Insurance Ireland ran an innovation programme in the early 2000s (2). AXA’s analysis of those improvement ideas implemented in the first few years of the programme showed that 80% of them related to small process or service improvements or waste elimination. This helped employees realise that indeed they could participate effectively in the programme by seeking improvements in how they performed their daily work. This helps engage employees in innovation as a regular part of their work – as demonstrated at Allianz Insurance. CI thus provides a good foundation for commencing a programme of innovation in an organisation. So whilst Continuous Improvement might not make as much noise as other forms of innovation, don’t underestimate the power of marginal gains multiplied by high participation in your organisation.

Notes:

1. Source:‘High engagement innovation at Allianz Insurance plc’. 2. Source:‘Experiments in innovation at AXA Insurance Ireland’

both case studies in ‘Innovating professional services – transforming value and efficiency‘, Alastair Ross, 2015, published by Gower.

Tags: Continuous Improvement, Industry, Services, Toyota
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Business as unusual – innovating professional services – 6

Monday, November 30th, 2015

by Alastair Ross, Director, Codexx Associates Ltd

Part 6. Starting your innovation journey

Introduction

This is the sixth of a series of seven articles on professional service innovation. The objective of the series is to provide a basic introduction to innovation management for managers, partners and change agents working in professional service firms. This article focuses on the approaches for starting or enhancing an innovation programme. To read the first article in the series go here.

Beginning a journey of change

There are a number of ways for a professional service firm to become a measurably more innovative business. There is no one ‘best practice’ way for how a firm should make the journey to realising their own effective innovation system. For that is as much to do with the goals, culture and the leadership of the firm as anything else. However, there are three significantly different approaches that are worth reviewing, as one of them may very well fit with your own firm’s situation and culture. It is important to note that just as an innovation process is drawn as a straight line, but in reality is closer to a lump of spaghetti, so the execution of an innovation programme is rarely clean. Here are three different practical approaches for developing an improved innovation capability in an organisation:

1. Top down strategy

2. Emergent

3. Champion led

1. Top down strategy

This is in many ways the classic consultant-advocated approach to innovation, which is logical and structured, putting in place the required ‘infrastructure’ (i.e. process, training, metrics, resourcing etc.) and the conditions (i.e. leadership, cultural changes and new behaviours) – as described in the previous articles – to enable and sustain innovation.

Strengths: This approach will deliver the conditions required for effective and sustainable innovation.

Weaknesses: This approach requires resourcing and will take time to deliver results – the other approaches can be faster to yield initial benefits.

2. Emergent

The emergent approach offers a pragmatic way to build or enhance a set of innovation capabilities. The trigger will be an existing event (typically external) such as tough business conditions driving the need for efficiency improvements to save cost; or a new requirement from a major client(s) for a dramatic change in a solution(s) value or price; or a business event such as a merger or acquisition.

Strengths: The innovation programme can piggyback on an existing change driver and enable more innovative behaviours and outcomes as a result. The existing change driver helps legitimise the need for innovation, so helps management push through the typical inhibitors to establishing innovation activities in a professional services firm. It can yield faster results than a ‘top down’ approach.

Weaknesses: It is unlikely to be sustainable beyond the short to medium term as the conditions for ongoing innovation have not been put in place and a ‘crisis-driven’ change programme can only run for so long.

3. Champion led

This is an opportunistic approach, which finds potential champions for innovation and then supports and resources them.

Strengths: This can be a fast and effective way for bringing new offerings to market. Individual champions are motivated to make their ideas a success. This can be a low resource approach, with little supporting infrastructure required, and only the matter of budget.

Weaknesses: Success depends on a few key individuals and if they fail to perform or they leave the organisation, then the innovation capability dies with them. This is not a system that leverages the capabilities of all the employees and is not sustainable in the long term. This approach is not uncommon in partner-based organisations when individual partners can be ‘given their head’ to take their ideas forward. Success is mixed however, typically with successes at least equalled by failures. And unless the budget is effectively allocated and controlled, a money-pit can be created….

What does experience tell us?

I’ve worked with a number of professional service (and industrial) firms over the last ten years on innovation programmes and inidividual projects and researched many case studies in the writing of my recent book and other articles. What are the three most important lessons that I have learned?

It is difficult to start (or ramp-up) an innovation programme
It is even more difficult to sustain innovation programmes
You cannot underestimate the importance of committed leadership

As discussed in previous articles in this serious, innovation requires a different paradigm to the dominant one that is prevalent in professional service (and most) businesses – i.e. the focus on delivering today’s business. Establishing an innovation programme requires focus and resources pointed at developing tomorrow’s business. This is why leadership is critical to its success. AXA Insurance (Ireland), IBM, PWC, Allianz Insurance plc and the law firm RPC all provide examples of successful innovation programmes where the senior management personally championed and were active in the programmes.

But the starting of innovation programmes benefits from the ‘excitement of the new’ which can help gain initial support, resourcing and involvement. Existing innovation programmes do not benefit from such enthusiasm, which is typically eroded over time, and it is often a struggle to maintain and progress them. These programmes must be kept fresh – through new focus themes, new champions, innovation competitions and rewards, for example.

But most importantly innovation must be embedded in the fabric of the firm – as part of ‘the way we work here’. This means strategy, budget, good people, time, management, measurement and rewards need to be allocated to innovation on an ongoing basis. In effect, professional service firms need to establish something similar in purpose (though not necessarily in structure) to the Research & Development (R&D) function that exists in industrial firms to enable an ongoing focus on innovation.

So what approach is best for taking innovation forward in your firm? My experience leads me to recommend a pragmatic approach that is the hybrid of the above:

Work to establish the required infrastructure – a system of innovation – whilst building involvement and gaining demonstrable results (thus maintaining management support and increasing employee buy-in).
Employ opportunistic approaches that make use of the energy and capabilities of key personnel acting as innovation champions.
Build on any ‘burning platforms’ that are available and help legitimise the need for the innovation programme.

In the final article of this series I will identify the typical challenges that firms face in seeking to improve their innovation capabilities and the approaches that are helpful in sustaining innovation into the longer term.

References and further reading

This article and the others in the series are based on the approaches, references and case studies detailed in my new book ‘Innovating professional services – transforming value and efficiency’ published by Gower in May 2015. This provides in-depth coverage and case studies of the topics featured in this series. For more information go to: https://www.codexx.com/2015/innovating-professional-services-new-book/

Tags: Innovation, Professional Services
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Business as unusual – innovating professional services – 5

Monday, November 16th, 2015

by Alastair Ross, Director, Codexx Associates Ltd

Part 5. Innovating to increase client value

Introduction

This is the fifth of a series of seven articles on professional service innovation. The objective of the series is to provide a basic introduction to innovation management for managers, partners and change agents working in professional service firms. This article looks at how to enhance client value using innovation. To read the first article in the series go here.

Enhancing value – introducing the value table

In the previous article I discussed the opportunity for cost reduction in a firm’s internal processes or services. In this article I’m focusing on the opportunity to improve value to clients through enhanced or new services. In what ways can we improve value to clients? We can think of value of a table, as shown in Figure 1. Functionality is the surface, as this is what clients/customers wish to buy in the first place – they are buying a service or a product to meet some specific requirements they have. The functionality of the service offered has to at least meet their minimum requirements to be considered. The four legs of the table represent the four attributes of how that functionality is delivered: The price of the service; the time it takes to deliver the service or respond to customer requests; the quality of the service provided (whether corrective actions are needed to address errors or omissions); finally the user experience in the lifecycle of acquiring and using the service. Innovation in any of these five areas will increase value to clients.

Figure 1: The Table of Value (Source: Codexx)

Examples of value enhancement

Functionality

Improving the fit of the service with client needs
This is effectively customization – it reduces the time and cost required by the client to tailor the service deliverables to their needs. This could be as simple as the structuring and format of reports to address different audiences, or to enable them to use reports or information directly with their own customers or suppliers. Much customization is achieved by adding additional cost and time, a better way is to achieve this is by what is called mass customization – using a modular service offering that can be configured to a customer’s requirements, with little additional time or cost.
Improving the functionality of the service
This can be achieved by enhancing the existing functionality (for example by adding additional analysis or reporting) or by broadening the scope of the service offered.

Price

Reducing the price of the service whilst maintaining key value elements
Cost reduction in services (as discussed in the previous article) can enable firms to either increase their margins or improve their competitiveness through keener pricing of their services. Fixed fee service offerings allows firms to make this choice, hourly fee arrangements automatically give clients the benefits of efficiency improvements. Another way to enable price reduction is by removing some existing work elements that clients do not value or by getting clients to perform some of the lower added-value work themselves (an IKEA approach if you like). Thus it is key to understand the elements of value contained within your service and how clients perceive their relative importance.
Providing a new pricing model
Clients are increasingly seeking budget certainty and thus defined price arrangements from firms – for example fixed fees or yearly fees – are increasingly relevant. ‘Performance-based’ pricing is always interesting to discuss, but more difficult to implement (often requiring complex metrics) and will only really succeed if there is the basis of an open and trusting relationship between client and supplier.

Quality

Improving the quality of the work delivered by services
This ensures that clients do not waste time and cost correcting or accommodating errors resulting from the supplied service. Quality means the performance against defined performance metrics (in services these are typically captured in Service Level Agreements (SLAs). It’s key that quality measures reflect what is truly important to clients, as there is a cost to measure, meet and report on these measures. Ongoing process management and innovation is key to good quality – and this is an area many professional service firms are weak in, so the cost of meeting quality targets can be high (i.e. measurement, rework, re-training and reporting).

Time

Improving the speed and responsiveness of services
This provides clients with service deliverables faster and is important for time-sensitive work (e.g. Due Diligence work). Service mapping and Lean approaches can be used to identify opportunities for reducing the elapsed time on activities and reducing any inherent delays. The use of self-service approaches using internet portals can also be effective in enabling clients to work at their own speed (and also reduces the potential for wasted time by fee earners).

Experience

Improving the service experience for clients
This makes the service easier and less stressful for client users. Improvements in experience need to be focused on key service touch points with clients and addressing any issues at these touch points. The overall service goal should be to delight not simply satisfy clients – as merely satisfied clients are always at risk of defection to rivals.

Really understanding client needs

To enable ongoing successful value-based innovation, a firm needs to gain deep insight into its clients’ businesses, to understand how they work, what their customers want and their key challenges. Once the landscape of a client’s business is truly understood, then the firm is well placed to identify opportunities for innovation. Engaging clients in this journey in a collaborative approach is an effective way of identifying and testing new innovations and building a valued and trusted relationship in the process.

In the next article I will show how firms can start or accelerate their innovation programme.

References and further reading

Tags: Innovation, Professional Services
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A story of law firm re-engineering: people, processes & profit

Thursday, November 5th, 2015

by Alastair Ross, Director, Codexx

Introduction
Whilst the term ‘re-engineering’ is typically prefaced by the word ‘process’ as this is the key focus area, re-engineering in professional services firms is very much about people. Successful re-engineering requires partners, fee earners and support personnel to make changes in their beliefs, behaviours and working methods. No small challenge then! To help illustrate the people-side of re-engineering in professional service firms, I’m going to review two recent projects I performed for a medium-sized UK law firm operating across three offices over a 12 month period.

Getting started
Codexx was contracted to help the firm drive major improvements in the efficiency of service delivery. The sponsor for the programme was the Managing Partner. The programme commenced in summer 2013 with an ‘Opportunity Assessment’ where I worked with the firm to select the initial services for re-engineering. The selection criteria we used included the potential financial benefits achievable through re-engineering as well as the level of support and commitment from relevant partners. As this was the start of the programme, it was particularly important to pick two services with a good likelihood of success – as otherwise it would reduce internal support for subsequent projects. For the first wave, two services were selected: an insurance claims management service and a clinical negligence service. Both services were delivered in relatively high volume, at a fixed fee, to important clients. And neither service was profitable. A ‘partner champion’ for each service was selected and I worked with each of them to help prepare them for the re-engineering programme that we were to undertake. The methodology we used in this programme was the Codexx ‘Smarter Working’ re-engineering solution which we developed and have used with professional service firms over the last decade. This uses a phased approach (see diagram) with a high level of collaboration from the client and the work in the initial AS-IS and TO-BE phases performed in interactive workshops and client visits.

The importance of the partner champions in professional service re-engineering projects cannot be underestimated. They help set the importance of the project for the fee-earning team members who are continually challenged for time on the project with their chargeable work commitments. If the partner champion is less than committed, the team members will follow suit. In this programme both the partner champions proved to be both committed and effective – attending all the required workshops and leading the team in challenging existing ways of working and identifying opportunities for service improvements. Together we selected a core team for each of the services, comprising 3-4 lawyers and an administrator. I established the ‘Steering Committee’ comprising the Managing Partner, Finance & HR Directors and Department Heads, for progress reviews and key decision making (e.g. in project investments) during the programme. Then the workshops was scheduled and we kicked off the programme with the first ‘AS-IS’ workshop for each of the two services.

The AS-IS phase – capturing today’s situation and changing beliefs

There are three key objectives for the AS-IS phase:

1. To capture the operation of the service as it is today to provide a performance baseline;

2. To educate the core team in new ways of thinking and assessing service efficiency and value;

3. To get the core team to recognise and commit to the need for change.

To do this our workshops cover both analysis and training in Lean-based service analysis and improvement principles. Thus the team members are able to map the existing service and identify key wastes. I guided the team in profiling the value provided to clients and the service experience they receive. I then prepared them to visit a number of selected clients to get their views on the service provided by the firm and to identify service improvement opportunities. In parallel I worked with the partner champion and Finance department to gather financial performance information on the service to identify typical matter cost and the resulting profit margin. So at the conclusion of the AS-IS phase we had a rich, detailed picture of the existing performance and issues of the two services and a growing list of potential improvements, which the partner champions and I reported to the Steering Committee.

Equally important in this phase is the development of the team – both in the beliefs and capabilities of the individual members and the team’s effectiveness as a whole. Initially in these two projects there was more than a little doubt in the team members about the value of this programme. The most experienced and senior associate in the claims management team was frankly dubious that their working methods could be improved in any significant way. This is not an unusual reaction in our legal projects, as process-thinking is not common in law firms. Indeed a lot of the concepts and thinking that we introduce to the team – such as Lean thinking, waste identification, process mapping, service disaggregation and right-skilling – is new and indeed alien to most lawyers! As our approach is deliberately collaborative with the team members actively performing mapping and analysis, they each make a journey of self-discovery by using these techniques and seeing the results for themselves. This results in an important transformation of individual thinking and leads to a level of buy-in to the resulting changes that is far deeper and permanent than a consultant-enforced change.

That very much proved to be the case here, with the formerly resistant associate lawyer, obviously enlightened and energised following the AS-IS, then working in her spare time to outline a new ‘TO-BE’ process for performing the claims management service that would reduce the time required to perform the service by nearly 75%. This is an outstanding example of individual change. But it is not uncommon and I find that fee earners are generally surprised at the level of inefficiency that their process mapping and waste analysis reveals. So by the end of the AS-IS phase they certainly recognise the need and also the obvious scope for improvement. To capture the insights and energy that builds in this phase we start capturing a list of improvement opportunities in the first workshop and build it during the AS-IS phase. New ideas are allocated to team members who are responsible for providing an initial exploration and recommendation as to whether this idea should go forward and even be a ‘Quick Hit’ project (we implemented a number of these in the claims management project during the AS-IS phase). This further engages team members and also provides a useful first ‘filter’ on new ideas. To broaden engagement beyond the core teams we used a ‘Living Walls’ approach to share our findings with the rest of the fee earners working on the service – and get their feedback – using large paper charts pinned up in working areas

Some of the major challenges in the AS-IS phase in this programme were: Difficulty in getting accurate service cost data and issues of fee earners fitting in project work alongside their existing client workload. These are challenges typically experienced in most of our legal re-engineering projects.

The TO-BE phase – designing a new service and new working methods
The objective of the TO-BE phase is to build on the learning from the AS-IS phase and design a new process, with a supporting organisation and IT, for delivering the service which is significantly more efficient (to yield cost savings) and provides higher value and a better experience for clients. In addition an implementation plan with supporting resourcing and business case are needed to validate the case for change.

To help in ‘framing’ the team’s TO-BE work, we typically use a ‘Vision workshop’ at the start of this phase with a number of partners and managers. We share the team’s AS-IS findings and work to develop a 3-5 year Vision for the service, with measurable targets. In this programme I ran a vision workshop for only one of the two services, where the multi-office and multi-partner operation of the service meant that it was valuable to share progress and likely changes to get partner input and eventual buy-in to support the partner champion.

In the TO-BE phase I worked with each team using a number of innovation tools and the existing ideas list to generate a number of ‘transformational concepts’ for the new service which we then mapped. This provided a blueprint for the new service which required much less time and cost to deliver whilst improving on the existing client service. The concepts were developed into transformation projects, making use of Codexx project definition templates, and an overall implementation plan and business case for change.

Interestingly, whilst at the start of the programme both teams were adamant that a new case management system was needed to enable major efficiency improvements, they did not eventually recommend this in the TO-BE phase. For by then it was clear that whilst the existing Case Management software was indeed old and ‘clunky’ the implementation of new case plans and templates to support the new TO-BE process would enable major improvements. So for now the old case management system would be ‘good enough’ – which improved the business case for these changes.

The major changes in the new TO-BE process for each service was an underlying process that was optimised to reduce required fee earner time, that was ‘right-skilled’ to push work down to the lowest skill level that it could be performed at with acceptable quality, that was ‘codified’ using templates and documented procedures that captured and deployed the ‘one best way’ approach for repetitive work elements, making use of Case Management to control workflow and deliver documents. Both services also changed the way in which experienced associates and partners were used in the service. Their time was reduced and focused on ‘up front’ matter strategy to guide fee earners rather than ‘back end’ review and checking of work already performed – to maximise their value and minimise fee earner inefficiencies. This freed up the most experienced (and expensive) fee earners to work on more complex work.

Overall the TO-BE for both services moved them from a rather informal working approach, where issues in resources and controls had led to variable (and expensive) outputs, to a more systematic working approach with improved resources and controls leading to more consistent outputs, at lower cost (see diagram below).

Implementation – changing behaviours and realising business benefits
The objective of the Implementation phase is to realise the TO-BE service by executing the defined transformation projects. Both programmes required the development and documentation of new templates, a ‘new process bible’ and updating the case management processes and screens (though keeping the existing case management system).

Implementation is always a challenge. The Managing Partner of one of our clients referred to it as ‘the grind of implementation’, which is an apt description. For the AS-IS and To-BE workshop phases of a re-engineering programme are ‘new and exciting’ with much collaboration. But in contrast, Implementation is more akin to ‘heads down’ and ‘get it done’ by project teams working on their own for much of the time – whilst team members also juggle a case load of work. It’s tough. We recognise this and particularly the challenge for time from client work. To help in this we provide a monthly progress review with the project leaders and partner champion, to keep at least a ‘monthly pulse’ of project work and to identify issues early. Despite this, we find that law firm projects typically slip and on this programme it was no different with most projects completing 8 weeks late. One key reason for this is that it is the core team members that typically lead the transformation projects and it is difficult to get their case load reduced during the implementation period (despite our recommendations) so they are typically very busy.

Our two programmes differed somewhat in their implementation experience. The claims management service was delivered from one office and thus is was easier and thus faster to get the required buy-in and implement the required changes. The clinical negligence service was delivered from teams and partners located across three offices. The partner champion thus had the added challenge of streamlining a service using fee earners who did not directly report to him, necessitating working to get the buy-in of other partners. In addition this service was more complex and thus required more work on process detailing and case management changes.

Continuous Improvement – locking in and extending improvements
I have been placing more emphasis on this phase in our re-engineering projects with law firms. This is because there is always the danger that the new methods and resulting improvements can fade away, as these islands of ‘new ways of working’ are surrounded by a large ocean of ‘business as usual’ in the rest of the firm…. So locking in new ways of working is key to retaining their benefits. But this is really not enough. For the reality is that there will continue to be downward pressure from clients on fees. So unless the firm wishes to suffer eroding margins, it needs to find further improvements over time.

So the objective of the Continuous Improvement phase is to lock in the existing improvements and establish a simple and ‘light touch’ system for identifying and implementing ongoing improvements that will further improve service and cost-effectiveness. Key elements that we put in place for these two services were a performance dashboard with monthly updates and at least a quarterly session involving team members to define improvement needs. One ongoing challenge is how best to reward fee earners delivering a fixed fee service and motivate them to further improve service efficiency – whilst their conventional targets and compensation are based on chargeable time… As part of these two programmes the firm recognised the need to develop new mechanisms for fee earner recognition based more on revenue and profit generated than on time recorded.

So what were the outcomes?
Both services have now been operating with the new methods for around 9 months at the time of writing. Compared to their operation prior to re-engineering, the claims management service has reduced costs by around 70% whilst maintaining service quality and improving reporting and billing quality. In addition, the firm has strengthened its relationship with the financial services client receiving the service, as the firm’s lean-based improvements were seen very positively by the client. The clinical negligence service has reduced costs by around 50% whilst improving service consistency and providing a faster service to its public sector client.

This significant cost reduction meant that both services are now providing a good level of profit to the firm. In addition, the fee earners in the teams working to the new methods have given a very positive feedback – a key reason being that they are finding the work less stressful than before – whilst delivering a better service at higher productivity. One team has used their process analysis experience to map and analyse a related support process which had performance issues. The firm subsequently commenced two more service re-engineering projects with Codexx.

Tags: Case study
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Business as unusual – innovating professional services – 4

Monday, October 26th, 2015

by Alastair Ross, Director, Codexx Associates Ltd

Part 4. Innovating to reduce process and service costs

Introduction

This is the fourth of a series of seven articles on professional service innovation. The objective of the series is to provide a basic introduction to innovation management for managers, partners and change agents working in professional service firms. This article discusses the opportunities for applying innovation to reduce the cost of operating internal support processes and external processes (i.e. services). To read the first article in the series go here.

The importance of process innovation

Processes and services are the most common opportunity areas for innovation in professional services firms (see reference study here). Business processes are the way work gets done in an organization and services deliver value to clients using internal and external processes. Therefore there are major opportunities for innovation in these areas. Of course process innovation has a long history from the industrial world, emanating in work study and Taylorism in the early 20^th century and being re-energised by the emergence of Lean thinking (based on the Toyota Production System) in the mid-1980s and Business Process Re-engineering in the early 1990s. Some would call such process innovation ‘business improvement’ rather than innovation. I find it more effective to consider this as part of an innovation programme – as it meets the criteria of innovation, i.e. converting ideas to value (e.g. improved efficiency). By including process innovation as part of the firm’s innovation programme, common resources and management methods can be applied.

In my experience in working with professional service firms, there is major opportunity for significant cost reduction through process innovation, because process thinking and management are typically absent in these firms – unlike industrial organisations. The application of process innovation methods such as Lean and Re-engineering can yield significant reductions in the direct costs of operating a process. This is achieved through a combination of the following approaches:

Making services and processes visible, using process mapping
Eliminating waste steps (such as checking and rework)
Defining standard process elements based on best practices to reduce the costs of unnecessary variation from the optimum
Improving adherence to defined processes using procedures and training
Automating process stages or workflow
Perform process stages using lower cost personnel

In my work with professional service firms (particularly law firms) over the last decade on such process innovation, clients have achieved reductions in the direct costs of performing services of between 25-50% (and as high as 75% on one occasion). This level of cost reduction enables a firm to significantly improve its competitiveness. However, there is a challenge. If existing services are charged on an hourly-rate basis, then all the efficiency benefits will be given to clients, either as less hours required per matter and/or lower hourly charges. To avoid this and enable a firm to determine how much to keep (as increased margins) and how much to give away (as price reductions), it needs to introduce fixed fees for the service. This is typically welcomed by clients as improving price certainty at a time of increased budget pressures. But firms then need to apply new disciplines for delivery management to ensure that fee earners can work to the required cost targets to ensure profitability targets for services are met.

In addition to direct cost reduction, there is the opportunity to reduce indirect costs (i.e. overheads) that are applied to fee earner time. There are three major opportunity areas for indirect cost reduction for professional service firms:

Office costs – through reduction in footage costs (lower cost location) or less footage needed (‘hot-desking’ and mobile working).
Purchasing of external services and materials – through good procurement practices and effective commodity management, which have often been weak in professional services in comparison to industry.
Support costs (e.g. IT) – through internal efficiency improvements (using process analysis) or outsourcing.

Overall, professional service firms need to reduce the share of their overheads taken by office costs and increase the share taken by IT. The latter is increasingly core to the effective and efficient delivery of professional services, the former is not.

In the next article I will show how firms can utilize innovation to increase the value provided to clients through enhanced or new services.

References and further reading

Tags: Innovation, Professional Services
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Business as unusual – innovating professional services – 3

Monday, October 5th, 2015

by Alastair Ross, Director, Codexx Associates Ltd

Part 3. Establishing an effective system of innovation

Introduction

This is the third of a series of seven articles on professional service innovation. The objective of the series is to provide a basic introduction to innovation management for managers, partners and change agents working in professional service firms. This article outlines a systematic approach to enable, direct and manage innovation within a professional services firm. To read the first article in the series go here.

Innovation is not easy to do – especially in professional services

The focus of business organizations is to deliver the current value proposition using today’s resources & thinking. Innovation is about developing tomorrow’s business, be it new value propositions, different ways of working, new market positioning or a new business model. This requires new thinking and for people to step out of their current paradigms of working and to be capable of challenging what and how things are done. Doing this needs people and time and thus is a particular challenge in professional service firms where the people who best understand the business are fee earners – and thus not so readily available for (what is non-chargeable) work on innovation. Typical challenges in attempting innovation in professional service firms are illustrated by the quotes below (from past Codexx studies):

“We have ideas but we’re not good at making them happen.” Managing Partner, Law Firm

“Our culture and measures don’t really support innovation.” Manager, Business Services

“People don’t want to take risky ideas to the boss.” Partner, Management Consulting

“Not a coordinated approach to innovation.” Head of Knowledge Management, Law Firm

A system for innovation

Experience and academic research has shown that a systematic approach to innovation improves an organization’s likelihood of delivering successful and sustained innovation. Such an innovation system is built on key practices across 7 areas (see Figure 1) which need to be put in place across the firm:

Leadership – Active support and encouragement from the top is key to establishing a supportive environment for innovation and also to focus the firm’s innovation efforts.
Strategy – A clear strategy is needed to provide context and priorities for innovation. The strategy will define where the firm will focus its innovation efforts with targets and supporting metrics.
Process – A structured and objective ideas management process is required to explore, select and implement the best ideas. This helps ensure that the firm focuses its limited resources on the best ideas, rather than ‘pet projects’.
Climate – A supportive culture and values are needed to establish an environment that promotes innovative behaviours. Key metrics in professional service firms, such as chargeable-time utilization, need to be complemented with other metrics that support innovation. Such metrics encourage employees and partners to make time for innovation and take the risk of proposing and championing new ideas.
Resources – People time, methods and money are needed to fuel innovation. In a professional services firm, making time available for fee earners to develop promising ideas is critical – as is recognizing and rewarding those who deliver innovation.
External Linkages – Effective links to the outside world, especially clients, for ideas and resources, is important for ensuring that the firm is focusing on market-relevant ideas. Engaging clients in innovation co-development also increases the likelihood of success and strengthens client relationships.
Learning – Capturing and sharing learning from innovation across the firm is key to increasing return from innovation activities – looking to where else a similar innovation can be applied and encouraging the ‘re-use’ of ideas. Process-based learning and improvement is also a competency that is fundamental to enabling continuous improvement, but is typically lacking in professional service firms (for more information on applying Knowledge Management to process improvement, see here).

Figure 1: The Innovation System Model (Source: Codexx)

Assessing your firm against the innovation system model

To help firms in establishing and developing their innovation system, Codexx uses an assessment approach called ‘Foundations for Innovation’ (F4i for short) that reviews 60 key practices that make up the 7 areas of the innovation system. Codexx has used F4i with law firms, insurance companies, business consultancies as well as industrial organisations. But as an initial start you can simply consider how effectively your firm supports innovation across the 7 areas defined above and what improvements are needed.

The overall innovation system will only be as strong as its weakest link. I have worked with professional service firms who established innovation processes, defined an innovation strategy and dedicated some personnel time for innovation, but the lack of a supportive innovation climate (non-chargeable time was not valued or rewarded) and indifferent leadership (other than a couple of partner champions, the board was lukewarm in support) meant that few ideas were generated to go into the innovation process and even fewer were progressed along it. A firm’s management needs to be committed to innovation if it is to establish a supportive system that enables effective and sustained innovation – rather than an occasional ‘get lucky’ approach.

In the next article I will show how firms can utilize innovation to reduce the costs of their business processes.

References and further reading

Tags: Innovation, Professional Services
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Business as unusual – innovating professional services – 2

Monday, September 21st, 2015

by Alastair Ross, Director, Codexx Associates Ltd

Part 2. Identifying innovation opportunities

Introduction

This is the second of a series of seven articles on professional service innovation. The objective of the series is to provide a basic introduction to innovation management for managers, partners and change agents working in professional service firms. This article helps answer the question ‘Where should we innovate?’ To read the first article in the series go here.

The need for focus

A key question for a firm’s management team is where to focus its innovation efforts. Far too many firms take an unfocused, unstructured, ‘laissez faire’ approach, resulting in time and money being wasted in projects that have poor value, failing to invest in projects that have much higher potential value and spreading investment and resources too thinly across the firm on too many projects. As a business development director of a major UK law firm put it “In practice we can have a lot of ‘crappy’ projects going on.” To avoid such a wasteful situation, a firm needs to have a systematic approach to framing and then developing innovation opportunities followed by an objective way of evaluating and selecting the resulting proposals. I will tackle the first requirement in this article and the latter in the next article on establishing an innovation system.

Your innovation dimensions

A useful model to help with this focus, based on academic research, is the ‘Dimensions of Innovation’ model. This models all the potential areas that an organisation can innovate in as four major ‘dimensions’ (see Figure 1). The centre of the circle represents the ‘Do Nothing’ state (i.e. no innovation). An organisation can then innovate in any number of the dimensions – the further out the circle is pushed, the higher the degree of innovation. Thus a small radius represents Do Better incremental innovation; the largest radius represents Do Different radical innovation.

I have used model this with legal, insurance, engineering and consulting clients over the past decade and I have found it to be a very useful tool, as it provides a single page view of innovation possibilities within a business. This helps facilitate discussion around existing innovation activities and highlights future opportunity areas that have not been well explored. As such, this provides a useful structure against which existing and proposed innovation activity can be mapped and reviewed.

Figure 1: Dimensions of Innovation (Source: Frances and Bessant, adapted by Codexx)

Let me build on the four dimensions and give some examples of innovation in each dimension:

1. Product innovation

This type of innovation lies in providing a new or enhanced value proposition to clients through the improvement of existing service products or the development of new services. In professional services, this can come from efficiency improvement through process innovation – resulting in ‘Do Better’ innovation of an existing service – improving the client service experience or providing a lower priced offering. It can also come through client-focused innovation, which can result in a new or ‘Do Different’ service – for example a web-based offering or a new pricing model (e.g. fixed fee or risk-sharing). For many professional service sectors, clients increasingly want price certainty and fixed price offerings provide this but also enable firms to keep the benefits of cost reduced services as improved margin.

Example: Mills & Reeve, a major UK law firm, facing significant pricing pressures in its inquest service from budget-constrained public sector clients, developed a web-enabled tailored inquest service for NHS clients offering a menu of pricing options including fixed fees. This new service utilized significant efficiency improvements and was adopted by a number of UK hospital trusts.

2. Process innovation

Process innovation covers the application of new ways of performing work – this can be new methods, new skills, new technology (e.g. IT) or organizational changes. This innovation can be applied to internal administrative processes (such as Bid Management, Billing or Client Inception) or chargeable services (such as Due Diligence, Project Delivery, Accounting Audit or Claims Management). It uses analysis of existing ways of working and the application of improvement techniques, such as Lean, to redesign processes to reduce cost and rework, speed up the service and improve quality. Key improvement opportunities include the application of standard procedures and documents for repetitive work elements, IT applications such as workflow management and internal and external collaboration solutions and the ‘right-skilling’ of work tasks.

This is a major opportunity area in most professional service firms, as processes typically are not well defined, standardized and have simply evolved over time. Employees typically have sufficient know-how to deliver a service but not know-why as to why it is performed in the way it is. This lack of insight is well captured by a manager in a major insurance company discussing current working methods: “A lot of what people are doing they don’t understand why, because it was done in the past.” So true insight is required to develop ‘Do Different’ process innovation – the innovation team need to ‘peel back’ existing services to their fundamentals and identify and challenge requirements and assumptions. There are a number of tools that can be used to help do this, (Codexx utilise a number of them in its Catalyst and Ideation workshops), one of the simplest is the ‘Five Whys?’ method developed in Toyota.

In professional services, the line between product and process innovation is blurred, as the redesign of services typically will require process innovation. However some process innovation, such as in cost reduction, may be opaque to clients as there will be no change in the resulting service value or experience.

Example: Allianz Insurance plc in the UK established weekly/bi-weekly team-based problem-solving to reduce cost and improve efficiency across their business and help to establish a more innovative working culture.

3. Market Position innovation

This is where innovation occurs in the positioning of the firm in the market. This can be achieved by the firm entering an existing market in which the firm had not previously competed; establishing a new market, or by changing the nature of its competitive position in an existing market (for example by significant change in its price/value proposition).

Example: The major international law firm DLA Piper, took advantage of UK deregulation of the legal market to launch a new legal vehicle LawVest. One of its first offerings was RiverView Law, a new business providing fixed price legal services, targeting small businesses and based on a lower cost legal organisation and defined processes. This enabled the firm to take advantage of market changes in a way that did not conflict with its existing ‘large client’ high-value brand.

4. Business Model innovation

A firm’s business model defines how it creates and delivers value to its clients – in essence how it makes money. The business model consists of three fundamental parts:

1. The value proposition
2. How the firm develops and delivers the value proposition
3. The firm’s mechanisms for selecting and serving its clients.

Business model innovation can be in any of these three areas. This is big, often ‘bet the firm’ innovation and is thus the rarest and most challenging type of business innovation. New entrants into existing markets often bring a new business model with them: RocketLawyer provides fixed fee legal ‘products’ via the web to small and mid-sized businesses; Crunch.co.uk provides web-based accounting services, also focusing on small and medium sized businesses; Freelancer.com provides an online market place to link over 16 million freelancers in IT and design services with customers.

Example: In 1991 IBM made a strategic decision to become ‘a world-class services company’ moving away from its hardware focus. At that time less than 10% of its revenue was from non-maintenance services. By 2001, services accounted for 41% of revenue and this was more than 60% by 2011. This transformation in its business model required a 10 year journey involving changes in strategy, culture, resources, organization, processes and offerings.

In the next article I will show how firms can establish a system for innovation that provides the key practices to support and direct innovation activities.

References and further reading

Tags: Innovation, innovation focus areas, Professional Services
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Business as unusual – innovating professional services

Monday, September 7th, 2015

by Alastair Ross, Director, Codexx Associates Ltd

Part 1. Setting the scene – when business as usual is not enough

Introduction

Increasingly in organizations, ‘business as usual’, the amalgam of existing thinking, value propositions and ways of working is not enough. What delivered commercial success in the past is not going to do so in the future, for the competitive environment is becoming more challenging – customers and clients increasingly want more for less, new competitors are arriving and technological advancement offers new forms of competition. The result is that businesses are seeing the need for increased levels of innovation to effectively compete.

All the above is now also true for professional service firms, many of whom have been relatively insulated from such commercial pressures due to their high-value offerings which were not easily replicated or automated and for some professions, such as law, enjoyed regulatory barriers to entry. But this is changing and innovation is moving up the agenda for management teams in these firms. This creates a major challenge for many firms with limited experience or capabilities in effective innovation.

Welcome to the first of a series of seven short articles on innovation in professional service firms. The objective of this series is to provide a foundation for partners, managers, and change leaders working in professional service firms on the opportunities, approaches and challenges for using innovation to improve their firm’s competitiveness. The series is based on my work on innovation and re-engineering projects with major UK and European professional services firms over the past ten years. The series will be published over the next three months with the planned contents as follows:

Part 1: Setting the scene – when business as usual is not enough

Part 2: Identifying innovation opportunities

Part 3: Establishing an effective system for innovation

Part 4: Innovating to reduce costs

Part 5: Innovating to increase value

Part 6: Starting your innovation journey

Part 7: Key challenges and sustaining innovation

So let’s get started:

Professional services – drivers for innovation

Professional service firms, such as lawyers, accountants and management consultants, are facing new challenges driven by fundamental trends, which have been accelerated by the economic weaknesses in western economies triggered by the 2008 financial crisis and resulting business downturn. These trends include:

Price-down pressures from clients seeking to reduce their supplier spend.
Deregulation (such as in the UK and Australian legal sectors) enabling new market entrants.
Service commoditization through the application of standardisation and IT.
Increasing competition from lower cost economies – such as India and China
New internet and mobile technology-enabled business models – such as Freelancer.com in IT and design services, Crunch.co.uk in accountancy and RocketLawyer.com in legal services

In response to these challenges, progressive firms are recognizing the need to innovate the services they provide and their ways of working. Such innovation enables them to reduce costs through more effective and efficient working and increases the value they provide to clients through new and enhanced services.

Let’s be clear on innovation

It’s important to have a clear view of innovation to help in developing the most effective approach to enabling and managing it. Defining innovation can become an almost religious debate for innovation consultants, who often end up excluding ‘normal’ business improvement activities. In my view, a more inclusive definition is of most use when seeking to manage innovation programmes within businesses. With this in mind I find the most effective definition is: ‘Innovation delivers value from ideas’. This definition includes small and large innovations and those conceived in your own business as well as those copied from others, i.e. that is new to you. To consider that innovation is only about ‘radical new ideas’ would lead to incremental improvements receiving insufficient focus within the business – and high engagement incremental improvement is very powerful (just ask Toyota who have built their business success on their Lean business model driving continuous improvement with high engagement of their workforce). A view that innovation only covers things that are ‘new to the world’ would drastically diminish the powerful benefits of adopting best practice methods proven elsewhere (aka ‘copy with pride’).

So innovation is about creating or using an idea and generating value from it (e.g. increased profitability). Successful exploitation of an idea is a key requirement for innovation. This is why innovation is more than just creativity – for many new ideas and inventions fail to deliver value and thus cannot be considered innovative. In the journey to realizing value from ideas, activities such as idea exploration, selection, development, implementation and learning are as important as creativity. And thus successful innovation within your firm needs the developers, the project managers and the trainers as much as the idea generators….

Institutional v Individual Innovation

In developing effective innovation within a firm it is vital to differentiate between ‘individual innovation’ and ‘institutional Innovation’. Many business professionals would claim that they innovate regularly in their work, in their methods or in what they deliver to clients. However, this type of innovation is primarily individual innovation. Such ‘innovation’ is personal, it is not codified or easily scalable (it may not even be valuable) across the wider organisation. Therefore the impact of such individual innovation is very limited in comparison to institutional innovation. Institutional innovation engages other personnel within the firm and outside it through codified, scaled and deployed innovations such as new or enhanced services, new ways of working and new strategies that deliver increased value. Institutional innovation may well start as individual innovation, but the lone innovator creates something that can be used by others and not just themselves, something that can be developed and deployed into an institutional innovation. For a firm to be effective in using innovation to improve its competitiveness, it must master institutional innovation. And in addition it must establish a systematic approach to effectively manage its innovation activities.

Key items for management’s innovation agenda

When a firm is seeking to significantly enhance its innovation capabilities, there are some key questions that need to be answered by the management team such as:

Where should we focus our innovation activities?
What’s slowing or preventing innovation today?
How do we select the best ideas, develop and implement them?
Who should get involved?
How do we resource innovation?
How do we encourage and reward participation?

I intend to guide readers in answering these questions in this series of articles.

In the next article I will show how firms can identify key opportunity areas for innovation in their firm by considering their key ‘dimensions for innovation’ and give examples of this in multiple professional service sectors.

References and further reading

Tags: . service innovation
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Innovation in professional services – why, what and how?

Wednesday, May 20th, 2015

There are approximately 450,000 professionals working in businesses that come under the banner of ‘professional services’ in the UK alone. Within this group are lawyers, accountants, management consultants, IT specialists, architects and other professionals who provide services to businesses and individuals based on knowledge, expertise and intellectual property. In the USA there are about 400,000 practising lawyers and over 1 million accountants. Professional Services alone is reported to generate more than US$ 3 trillion in revenue globally and in the UK the sector employs almost 12% of the workforce and accounts for 8% of national output.*

So this is a key business sector and also one that is facing major challenges to both its business model and its operating methods from a combination of globalisation, regulatory changes, client demands and the impact of the internet and Information Technology. These challenges are driving progressive firms to respond through innovation in how they operate and the value they provide to their clients.

Responding with innovation
Many professional service firms would like to improve their innovation capability, but often do not know where to start or how to establish and sustain a culture for innovation. Some sectors such as law have enjoyed long term stability and have not needed to significantly innovate, but this is changing due to the new business pressures. This short article identifies some of the key approaches required for effective innovation in professional services and some of the common challenges encountered. It is based on our consulting experience with professional service firms over the past 10 years, together with insight from our academic partners.

Figure 1: Innovation – the farming of ideas

What is innovation?

Much time and effort can be spent arguing about what is and is not innovation. Whilst there is no ‘correct’ answer, it is key that there is a common definition and understanding across an organisation. In our experience the most effective definition is that innovation is anything that is ‘new to you’. This means that innovation includes incremental improvement as well as radical innovation. It also includes methods already in use elsewhere, (even within other parts of your business) that are adopted in your business. Whilst radical innovation gets the headlines, it is the much less glamorous regular small improvements that make up 95% of innovation ideas and can be massively powerful (witness Toyota’s rise to be the global automotive leader based on 50 years of Lean (i.e. incremental) improvement).

This inclusive definition of innovation is the most useful to business management who wish to establish a culture and system of innovation. Recognising the power of a high number of small ideas is at least as important as seeking the very few ‘game changing’ innovations.

At its simplest, innovation is about generating ideas and converting the best ideas to value for the business. We can consider a farming analogy for innovation (Figure 1), where an effective system and supportive environment are required to grow and harvest the best ideas. It is important to recognise that creativity alone is not innovation. Creative ideas that are not implemented do not result in innovation.

Figure 2: Dimensions of Innovation (Source: ‘Innovating professional services – transforming value and efficiency’ by Alastair Ross, published May 2015, Gower)

Where to innovate?

Firms have finite resources and need to best apply these resources, especially when it comes to innovation. But how should firms apply these resources when it comes to innovation—where should they focus? A useful model for innovation is one of ‘Innovation Dimensions’ as shown in Figure 2. This considers four ’dimensions’ where firms can innovate—where they choose to do so depends on their strategy and current practices. At the centre or ‘zero point’ of the circle a business is not innovating. It can innovate in any of the four dimensions—at a low (incremental) level or a high (radical) level:

Process
A common area for business innovation is innovation in business processes which govern the ways of working. This has much potential in professional service firms where process definition and management can be lacking. Process innovation is an excellent way of engaging employees to come up with ideas for incremental improvements in their working methods. Bigger step change innovation can be driven through a re-engineering approach. Process innovation can involve waste reduction, reorganisation and ‘right-skilling’ of the personnel performing the process and the application of IT. The example in the model is of the insurance company QBE who applied 6-sigma improvement methodologies to process improvements in their business.
Offering
Innovation can also be applied in the services provided to clients, either to improve existing services or create new ones. In the model, the example given is of the law firm Mills & Reeve who developed an iPhone App for their Divorce.co.uk offering. We have worked extensively with major UK law firms to help them re-engineer services such as Due Diligence, Employment Tribunals and Inquests to increase value and service to clients and reduce cost of delivery.
Market position
Another way of innovating can be in the repositioning of the firm’s value proposition in the marketplace. To take advantage of deregulation in the UK legal market, the major UK law firm DLA Piper jointly set up a new vehicle, ‘LawVest’ to enable investments in new fixed price services for mid-sized businesses.
Paradigm
The last innovation dimension is the hardest to exploit as it is quite simply the reinvention of the firm’s business model. The example given is that of IBM, who from the early 1990s, over a decade, transformed their business away from one based primarily on hardware to one based on software and services. The internet provides a powerful vehicle for firms seeking to develop new business models, enabling on-line services, with global reach and at substantially lower cost than personal services. Examples of new internet-enabled professional service businesses include crunch.com for online accountancy and freelancer.com for software and design solutions.

A system for innovation
If you want to have effective and ongoing innovation in your business, you have to proactively establish the conditions for it. Research and experience has shown time and time again that effective and sustainable innovation requires an holistic and systematic approach to innovation. This approach weaves together the threads of a number of key practices to create a strong and rich fabric of innovation capabilities. Exploiting these capabilities leads to long term superior performance. Best practice innovation thus requires an integrated system, (Figure 3) which is comprises seven key practice areas:

Figure 3: The innovation system (Source: Codexx)

Leadership – Active support and encouragement from the top is key to innovation
Strategy – A clear business strategy is required to provide context and priorities for innovation
Process – A structured process to generate, explore, select and implement the best new ideas is key
Climate – The organisation’s culture and values can either energize or emasculate innovation
Resources – People time, methods, money and other resources are needed for innovation
Learning – Capturing and sharing learning across the organisation is key to effective innovation
External Linkages – No organisation is an island – ideas & resources from outside are key ingredients

The ‘Innovation System’ model is an effective way for a business to think about and develop their innovation system. We have helped a number of businesses improve their innovation system by using our ‘Foundations for Innovation’ (F4i) solution to assess their current innovation capabilities against 60 best practices underlying the innovation system model.

Innovation challenges in professional services—the ‘Top 6’
Innovation is difficult —for the simple reason that it is easier for any organization to continue ‘business as usual’ than to change. And innovation is about making change. Organizations that are effective at innovation are able to embed a culture that encourages ongoing change. So, many of the challenges that face professional service firms in innovation, apply to all businesses. But focusing on those common challenges that professional service firms face in our experience, together with comments made by professional service clients:

1. Poor supportive culture for innovation

“There is lip service to innovation at senior levels due to the difficulty of making the required cultural change.” Partner, Law Firm
“People don’t want to take risky ideas to the boss.” Partner, Management Consultancy
Many firms effectively discourage innovation through a combination of leadership behaviours, organisational ‘norms’ (e.g. “more of the same has worked well for us for 20 years so why change?”) and resistance to change dominating the firm’s culture. A key challenge for professional service firms is that fee earners typically only value time that is chargeable, and therefore are disinclined to invest time in other activities (e.g. innovation) which will not be valued in their performance appraisal or bonus.

2. Limited understanding of client needs

“We’ve been in our functional silos too long and they’re too deep.” Manager, Business Services
“Our new offering was less successful as it took too long and had not enough client involvement.” Managing Partner, Law Firm

Engaging clients early in the development of a new product/service is an effective way of increasing the chance that the new offering will bring value to clients. Many new ideas come from firm’s clients or from an insight gained into a client’s business. This is why deep understanding of clients’ businesses is key to effective product/service innovation. However, many firms have a transactional relationship with clients and do not invest enough time and energy to understand their business challenges and so identify innovation opportunities

3. Insufficient resourcing for innovation

“Time is a big issue – we’re a cog of labour.” Partner, Law Firm
“Carving out real time for innovation instead of chargeable work is a major challenge.” Partner, Management Consultancy

The key resource required for innovation in a professional service firm is time – particularly the time of fee earners and key support personnel. Time is needed to reflect on the business, to gain insight from clients, to analyse existing methods and brainstorm new ones, to develop, implement and deploy new solutions. Few professional service firms have established dedicated ‘innovation teams’ armed with methods and budget who can be used to support innovation projects. Once an idea has traction, the other resource barrier that typically emerges is IT resourcing.

4. Poor innovation process

“By the time you get through all the bureaucracy the system will be obsolete or the idea will be dead.” Employee, Insurance
A core foundation for effective innovation is a robust process that links ideas with delivered value (e.g. a new or improved product/service, a new way of working or a new pricing model). This process must guide idea development, selection and investment using appropriate criteria, and monitor and support development and implementation. Whilst an innovation/new product development process is common in the industrial sector, it is less so in professional services. Its absence means that innovation ideas from employees can struggle to be heard and in comparison poor quality ideas can be pushed through if championed by a Partner or senior manager.

5. Ineffective execution
“People want to practice their legal skills. It’s seen as de-skilling them to ask them to be a project manager.”

There is a distinct difference between creativity and innovation. Creativity may be required at the start of the innovation process (even if it is simply to borrow an idea from another sector), but it has no value without execution. Firms can be guilty of under-resourcing implementation – for new products this can include insufficient resourcing for marketing and selling the new offering. The ‘long slog’ of implementation can be less attractive for employees and managers than attending a few brainstorming workshops to generate new ideas…. Implementation needs to be a recognised critical part of a firm’s innovation process and resourced accordingly.

6. Resistance to systemization of work

“Current performance measures penalise efficiency and delegation.” Head of Knowledge Management, Law Firm
“Resistance is from middle management – senior management is supportive.”

A key innovation opportunity for professional service firms is in dramatically improving their cost performance by streamlining services and internal processes and ‘right-skilling’ work – with significant amounts of repetitive work being moved to lower skilled personnel, automated or outsourced. The use of ‘Standard Operating Procedures’ together with IT-enabled workflow means that work can be performed at a similar level of quality as before but at much lower cost. This frees up experienced personnel to take on higher value work and also to have time to spend on innovation and business development.

However, the flip side of this benefit is that these personnel will in the short term lose a significant amount of their work. This can create concerns about their long-term future and short-term compensation. Long-serving employees may also consider that the ‘professionalism’ of their firm is threatened by the use of semi-skilled employees now performing their work. But as I have said a number of times to legal partners – if they decide to buy a Porsche, they will expect high quality and high performance. But they will not expect that it will be built by the CEO of Porsche! They accept that it will be built by a semi-skilled worker on a production line, but following processes and procedures codified from the experience of the firm’s engineers…. This lesson equally applies to professional service firms. A key paradigm change for professionals is in separating their role into the two elements of design and delivery. A professional may bring more value to their firm by using their time to codify their expertise and supporting the design of new working methods) to enable it to be delivered by others or via an automated system) rather than delivering it themselves.

Getting started

Developing an effective capability for innovation is important in professional service firms as they seek to retain their competitiveness in an increasingly challenging global marketplace. Firms can learn from other sectors, but will need to ‘tune’ established methods for the services world.

Codexx has helped professional service firms improve their innovation activities in a number of ways, including:

Assessment of firms’ innovation health against our F4i innovation best practice model and developing an improvement strategy.
Training – of managers and employees in innovation approaches and methods.
Establishing key elements of an innovation system (such as a strategy, processes, resourcing).
Developing department/sector strategies using Strategic Road-Mapping to align innovation activities with market strategies.
Running user/customer/client collaborative studies to determine opportunities for value innovation.
Re-engineering existing services (and internal support processes) to improve efficiency and value.
Supporting the design and development of new service offerings.

We have seen that such approaches can yield major benefits for firms both in terms of increasing service value, reducing cost and giving the organisation increased competencies for subsequent innovation. The reality is that for many (most?) professional service firms, establishing effective innovation will be challenging, yet rewarding and ultimately necessary for growth in the new business environment.

For more information contact Codexx.

*This article draws upon materials in the book ‘Innovating professional services – transforming value and efficiency’ by Alastair Ross, Director of Codexx, published on the 8th May 2015 by Gower. For more information and online discount click here.

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Archive for the ‘Law’ Category

Part 7. Key challenges and sustaining innovation

Introduction

Key innovation challenges

Addressing key challenges

Sustaining innovation

DVP > C

Summary of the series

References and further reading

A short history of Continuous Improvement

Toyota sets the performance bar

What about services?

Making difficulties visible

Continuous Improvement needs ‘Know Why’ not ‘Know How’

Marginal gains x high participation = something big

Part 6. Starting your innovation journey

Introduction

Beginning a journey of change

1. Top down strategy

2. Emergent

3. Champion led

1. Top down strategy

2. Emergent

3. Champion led

What does experience tell us?

References and further reading

Part 5. Innovating to increase client value

Introduction

Enhancing value – introducing the value table

Examples of value enhancement

Functionality

Price

Quality

Time

Experience

Really understanding client needs

References and further reading

Part 4. Innovating to reduce process and service costs

Introduction

The importance of process innovation

References and further reading

Part 3. Establishing an effective system of innovation

Introduction

Innovation is not easy to do – especially in professional services

A system for innovation

Assessing your firm against the innovation system model

References and further reading

Part 2. Identifying innovation opportunities

Introduction

The need for focus

Your innovation dimensions

1. Product innovation

2. Process innovation

3. Market Position innovation

4. Business Model innovation

References and further reading

Part 1. Setting the scene – when business as usual is not enough

Introduction

Professional services – drivers for innovation

Let’s be clear on innovation

Institutional v Individual Innovation

Key items for management’s innovation agenda

References and further reading

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